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US companies continue to report strong earnings, but forecasts for upcoming results are mixed
NEW YORK (AP) ' U.S. stocks fluctuated Wednesday after companies reported strong earnings but gave mixed forecasts for the future.
Target Corp., Staples Inc. and Dell Inc. all reported earnings for last quarter that were above analysts' forecasts. Companies in the Standard & Poor's 500 are on track to report higher profits for a ninth straight quarter. But economic growth is weak around the world, and some economists worry that a second recession may be coming. That could pull down future results.
Target and Staples both gave profit forecasts that were above Wall Street's expectations, but Dell cut its prediction for revenue growth this year.
The Dow Jones industrial average fell 49 points, or 0.4 percent, to 11,357 at 1:30 p.m. in New York. It had been up as many as 120 around 10:30 a.m. The S&P 500 fell 4, or 0.4 percent, to 1,188. The Nasdaq composite fell 26, or 1.1 percent, to 2,497.
Six of the 10 sectors that make up the S&P 500 rose. Four fell, led by a 1.4 percent drop for technology stocks after Dell's forecast cut.
"There are a whole bunch of contradictory signals in the system now, and it's hard to tell which way to go," said Charlie Smith, chief investment officer of Fort Pitt Capital Group, which has just over $1 billion in assets under management.
The increased role of automated trading by computers has increased volatility, making investing more difficult. "When you get a piece of news, it's almost like the machines are trying to out-quick each other," and they are sending stocks in straight lines up or down, Smith said. "That's what really scares retail investors. We try to sit and wait in the weeds for good businesses at good prices."
He has focused on telecom stocks and cable companies. Their relatively big dividend yields look more attractive given low yields on bonds. The yield on the 10-year Treasury note is at 2.17 percent, down from 3.34 percent at the start of the year.
Telecom stocks in the S&P 500 rose 1.1 percent Wednesday, the most among the 10 sectors that make up the index. Utility stocks also tend to pay dividends, and they rose 0.8 percent.
Energy stocks rose 0.4 percent after crude oil gained 95 cents per barrel to $87.60.
Dell said late Tuesday its profit rose 63 percent last quarter on strong demand from businesses and government agencies. But it also cited "a more uncertain demand environment" when it cut its forecast for annual revenue growth to a range of 1 percent to 5 percent. That's down from an earlier growth forecast for 5 percent to 9 percent. Dell stock fell 10.5 percent Wednesday.
Other companies are more optimistic. Retailer Target said it expects to earn between $4.15 per share and $4.30 per share this year. Analysts had expected $4.14 per share. Target also said its earnings last quarter rose 3.7 percent on sales of grocery, beauty products and other items. Target shares rose 1.5 percent.
Office products retailer Staples raised its profit forecast for the year after saying strong international sales pushed earnings up 36 percent last quarter.
Deere also raised its forecast for full-year earnings. It now expects to earn $2.7 billion this fiscal year, up from a May forecast of $2.65 billion. The maker of tractors and other heavy equipment said its profit rose 15 percent last quarter on strong demand for farm equipment.
Companies are making more money, but many have done so by raising prices to offset higher costs. Higher food prices helped push inflation at the wholesale level to 0.2 percent in July, according to a government report Wednesday. But that is still well below inflation levels earlier this year when oil prices were spiking because of violence in the Middle East. In February, wholesale inflation was 1.5 percent.
Stocks have been particularly volatile in August. Worries rose as the U.S. government said it may default on its debt unless it was allowed to borrow more. The government just beat the deadline to avoid a default, but the partisanship in the debate came at a cost ' Standard & Poor's downgraded the U.S. credit rating on Aug. 5 by one notch to AA+ from the top AAA rating. That triggered one of Wall Street's wildest weeks: The Dow rose or fell by at least 400 points in each of the first four days of last week, the first time that has happened.
Markets appear to have calmed somewhat since then. Tuesday marked the first time since the Aug. 5 downgrade that the Dow rose or fell by less than 100 points. It fell 76 points on worries about Europe's ability to contain its debt problems. Some European countries have borrowed so much that investors fear they won't be able to repay their debts. The Dow had been down as many as 190 points earlier Tuesday.